The Experts below are selected from a list of 324 Experts worldwide ranked by ideXlab platform
Michael C Jensen - One of the best experts on this subject based on the ideXlab platform.
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paying people to lie the truth about the Budgeting Process
European Financial Management, 2003Co-Authors: Michael C JensenAbstract:This paper analyzes the counterproductive effects associated with using budgets or targets in an organisation's performance measurement and compensation systems. Paying people on the basis of how their performance relates to a budget or target causes people to game the system and in doing so to destroy value in two main ways: (a) both superiors and subordinates lie in the formulation of budgets and, therefore, gut the Budgeting Process of the critical unbiased information that is required to coordinate the activities of disparate parts of an organisation, and (b) they game the realisation of the budgets or targets and in doing so destroy value for their organisations. Although most managers and analysts understand that budget gaming is widespread, few understand the huge costs it imposes on organisations and how to lower them. My purpose in this paper is to explain exactly how this happens and how managers and firms can stop this counter-productive cycle. The key lies not in destroying the Budgeting systems, but in changing the way organisations pay people. In particular to stop this highly counter-productive behaviour we must stop using budgets or targets in the compensation formulas and promotion systems for employees and managers. This means taking all kinks, discontinuities and non-linearities out of the pay-for-performance profile of each employee and manager. Such purely linear compensation formulas provide no incentives to lie, or to withhold and distort information, or to game the system. While the evidence on the costs of these systems is not extensive, I believe that solving the problems could easily result in large productivity and value increases – sometimes as much as 50–100% improvements in productivity. I believe the less intensive reliance on such budget/target systems is an important cause of the increased productivity of entrepreneurial and LBO firms. Moreover, eliminating budget/target-induced gaming from the management system will eliminate one of the major forces leading to the general loss of integrity in organisations. People are taught to lie in these pervasive Budgeting systems because if they tell the truth they often get punished and if they lie they get rewarded. Once taught to lie in this system people generally cannot help but extend that behaviour to all sorts of other relationships in the organisation.
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professional forum paying people to lie the truth about the Budgeting Process
Social Science Research Network, 2003Co-Authors: Michael C JensenAbstract:This paper analyzes the counterproductive effects associated with using budgets or targets in an organisation’s performance measurement and compensation systems. Paying people on the basis of how their performance relates to a budget or target causes people to game the system and in doing so to destroy value in two main ways: (a) both superiors and subordinates lie in the formulation of budgets and, therefore, gut the Budgeting Process of the critical unbiased information that is required to coordinate the activities of disparate parts of an organisation, and (b) they game the realisation of the budgets or targets and in doing so destroy value for their organisations. Although most managers and analysts understand that budget gaming is widespread, few understand the huge costs it imposes on organisations and how to lower them. My purpose in this paper is to explain exactly how this happens and how managers and firms can stop this counter-productive cycle. The key lies not in destroying the Budgeting systems, but in changing the way organisations pay people. In particular to stop this highly counter-productive behaviour we must stop using budgets or targets in the compensation formulas and promotion systems for employees and managers. This means taking all kinks, discontinuities and non-linearities out of the pay-for-performance profile of each employee and manager. Such purely linear compensation formulas provide no incentives to lie, or to withhold and distort information, or to game the system. While the evidence on the costs of these systems is not extensive, I believe that solving the problems could easily result in large productivity and value increases – sometimes as much as 50–100% improvements in productivity. I believe the less intensive reliance on such budget/target systems is an important cause of the increased productivity of
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paying people to lie the truth about the Budgeting Process
Social Science Research Network, 2001Co-Authors: Michael C JensenAbstract:This paper analyzes the counterproductive effects associated with using budgets or targets in an organization's performance measurement and compensation systems. Paying people on the basis of how their performance relates to a budget or target causes people to game the system and in doing so to destroy value in two main ways: 1. both superiors and subordinates lie in the formulation of budgets and therefore gut the Budgeting Process of the critical unbiased information that is required to coordinate the activities of disparate parts of an organization, and 2. they game the realization of the budgets or targets and in doing so destroy value for their organizations. Although most managers and analysts understand that budget gaming is widespread, few understand the huge costs it imposes on organizations and how to lower them. My purpose in this paper is to explain exactly how this happens and how managers and firms can stop this counterproductive cycle. The key lies not in destroying the Budgeting systems, but in changing the way organizations pay people. In particular to stop this highly counterproductive behavior we must stop using budgets or targets in the compensation formulas and promotion systems for employees and managers. This means taking all kinks, discontinuities and non-linearities out of the pay-for-performance profile of each employee and manager. Such purely linear compensation formulas provide no incentives to lie, or to withhold and distort information, or to game the system. While the evidence on the costs of these systems is not extensive, I believe that solving the problems could easily result in large productivity and value increases - sometimes as much as 50 to 100% improvements in productivity. I believe the less intensive reliance on such budget/target systems is an important cause of the increased productivity of entrepreneurial and LBO firms. Moreover, eliminating budget/target-induced gaming from the management system will eliminate one of the major forces leading to the general loss of integrity in organizations. People are taught to lie in these pervasive Budgeting systems because if they tell the truth they often get punished and if they lie they get rewarded. Once taught to lie in this system people generally cannot help but extend that behavior to all sorts of other relationships in the organization. ----------- An executive summary of this paper entitled "Corporate Budgeting Is Broken, Let's Fix It", Harvard Business Review, pp. 94-101, November 2001, can be downloaded at no charge from Social Science Research Network Electronic Library at: http://papers.ssrn.com/paper=321520
Lenos Trigeorgis - One of the best experts on this subject based on the ideXlab platform.
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the strategic capital Budgeting Process a review of theories and practices
Social Science Research Network, 1995Co-Authors: Van Son Lai, Lenos TrigeorgisAbstract:The resource allocation Process constitutes the main vehicle for a company’s strategic thrust, and eventually determines its long-run competitive position. Strategic decision making in organizations is naturally driven by "bounded rationality", involving interactions among various stakeholders. A firm’s resource allocation choices should reflect both the "bottom-up" Process of capital Budgeting and the "top-down" Process of strategic planning in a complementary and interactive fashion. We describe the basic structure of the strategic resource allocation Process, and illustrate the interaction among the different levels of organizational decision making. The potential of real options to better reflect strategic investment choices is also discussed.
Anja Schwering - One of the best experts on this subject based on the ideXlab platform.
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Digitization of the Budgeting Process: determinants of the use of business analytics and its effect on satisfaction with the Budgeting Process
Journal of Management Control, 2020Co-Authors: Mareike Bergmann, Christian Brück, Thorsten Knauer, Anja SchweringAbstract:Since the use of business analytics promises automation of business Processes and time savings, the Budgeting Process seems predestined for the integration of analytical methods. Therefore, this study examines the determinants of the use of business analytics in the Budgeting Process and its effect on satisfaction with the Budgeting Process. Specifically, we focus on one technical determinant (data infrastructure sophistication) and the importance of the two major Budgeting functions (the planning and the evaluation function), which could affect the degree of dissemination of using analytical methods. Based on a survey among German companies, we find, as predicted, that the sophistication of the data infrastructure is positively associated with the use of business analytics in the Budgeting Process. Further, the more a company emphasizes the planning function, the greater the extent to which business analytics is used in the Budgeting Process. In contrast, we find no association between the evaluation function and the use of business analytics in the Budgeting Process. Finally, we find that the use of business analytics is positively associated with satisfaction with the Budgeting Process. Thus, the use of business analytics can help to overcome dissatisfaction with traditional Budgeting systems. Overall, our findings provide practitioners with valuable indications under which circumstances the use of analytical methods appears reasonable.
Stephanie Mcnulty - One of the best experts on this subject based on the ideXlab platform.
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improved governance exploring the results of peru s participatory Budgeting Process
Social Science Research Network, 2013Co-Authors: Stephanie McnultyAbstract:Can a nationally mandated participatory budget Process (PB) change the nature of local governance? Passed in 2003 to mandate participatory Budgeting in all districts and regions of Peru, Peru's National PB Law has garnered international attention from proponents of participatory governance. However, to date, the results of the Process have not been widely documented. Presenting data that have been gathered through fieldwork, online databases, and primary documents, this paper explores the results of Peru’s PB after ten years of implementation. The paper finds that results are limited. While there are a significant number of actors engaged in the Process, the PB is still dominated by elite actors that do not represent the diversity of the civil society sector in Peru. Participants approve important “pro-poor” projects, but they are not always executed. Finally, two important indicators of governance, sub-national conflict and trust in local institutions, have not improved over time. Until Peruvian politicians make a concerted effort to move beyond politics as usual, results will continue to be limited.
Mareike Bergmann - One of the best experts on this subject based on the ideXlab platform.
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Digitization of the Budgeting Process: determinants of the use of business analytics and its effect on satisfaction with the Budgeting Process
Journal of Management Control, 2020Co-Authors: Mareike Bergmann, Christian Brück, Thorsten Knauer, Anja SchweringAbstract:Since the use of business analytics promises automation of business Processes and time savings, the Budgeting Process seems predestined for the integration of analytical methods. Therefore, this study examines the determinants of the use of business analytics in the Budgeting Process and its effect on satisfaction with the Budgeting Process. Specifically, we focus on one technical determinant (data infrastructure sophistication) and the importance of the two major Budgeting functions (the planning and the evaluation function), which could affect the degree of dissemination of using analytical methods. Based on a survey among German companies, we find, as predicted, that the sophistication of the data infrastructure is positively associated with the use of business analytics in the Budgeting Process. Further, the more a company emphasizes the planning function, the greater the extent to which business analytics is used in the Budgeting Process. In contrast, we find no association between the evaluation function and the use of business analytics in the Budgeting Process. Finally, we find that the use of business analytics is positively associated with satisfaction with the Budgeting Process. Thus, the use of business analytics can help to overcome dissatisfaction with traditional Budgeting systems. Overall, our findings provide practitioners with valuable indications under which circumstances the use of analytical methods appears reasonable.
